Title: Experiences and Problems with the climate change levy in the UK from a political point of view
1Experiences and Problems with the climate change
levy in the UK from a political point of view
- Sue Doughty MP
- Liberal Democrat Shadow Minister for the
Environment
GREEN BUDGET GERMANY 25 June 2004
2Background to Climate Change Levy
- Consultation began in early 1998 with a report
from the Advisory Committee on Business and the
Environment - A levy was recommended by Lord Marshalls report,
Economic Instruments and the Business use of
Energy (October 1998) - A Customs and Excise consultation, parliamentary
debate and Government negotiation with industry
followed the Chancellors Budget 1999 announcement
of plans for a levy - Climate Change Levy (CCL) introduced in April
2001 through provisions in the Finance Act 2000. - CCL is part of a package of measure known as the
Climate Change Programme (CCP) and needs to be
understood in the context of the full package of
measures.
3Climate Change Programme
- Published in November 2000 detailing plans to
deliver Kyoto targets and domestic climate change
goals - Reduce emissions of green house gases by 12.5
CO2 emissions by 20 by 2010 (1990 levels) - Main policies and measures
- Climate Change Levy (April 2001)
- Establishment of the Carbon Trust (April 2001)
- Emissions Trading Scheme (April 2002)
- 10 year transport plan (180 billion investment
in public transport) - Double UK CHP capacity by 2010
- Renewables Obligation electricity generators
target of 10 renewable by 2010 and 15 by 2015 - New regulations for energy efficiency of
buildings - Home energy efficiency scheme for domestic sector
4CCL consultation responses outcomes
- Opposed by the Conservative opposition as badly
thought out, badly targeted, damaging,
anti-competitive and wrong - Opposed by industrial sectors likely to be most
affected - Supported but with major reservations by Lib Dems
and environmental NGOs that favoured a carbon tax - Government agreed to following outcomes
- Levy should target industrial and commercial
energy use but not domestic energy use - Levy should be fiscally neutral and with revenues
recycled to business - Special provisions should be made for energy
intensive industries - Exemptions from the levy should be made for
electricity generated from renewable sources
5CCL Climate Change Agreements
- Introduced to assist energy intensive sectors
(currently 44 sectors, e.g. cement, steel,
aluminium, ceramics) - Requires targets for energy efficiency and carbon
reduction to be met (negotiated with trade
associations) - 80 CCL discount for qualifying businesses
- Tax differential for CCAs worth around 300
million per year - In its first year CCAs saved 13.5 million tonnes
CO2 and 88 of CCA businesses met their targets
6CCL revenue useCCL generates around 1 billion
per year
- Principal routes for recycling CCL revenue
- 0.3 discount for employer National Insurance
contributions (no focus on energy) - Carbon Trust received 69 million funding last
year, 33 million of which is from CCL revenue,
and runs following programmes - Action Energy Programme
- Enhanced Capital Allowances (100-140 million pa)
- Low Carbon Innovation Programme
- Emissions Trading Scheme (43 million pa)
7CCL current criticisms
- Inefficient only targets certain energy users
- Unfair CCL is fiscally neutral only at a
macrocopic level, so it impacts on some
businesses more heavily than others - Too complicated and bureaucratic, e.g. exemption
certificates for CHP and renewable generation - Too difficult to measure CCLs effect amid
plethora of schemes - CCL is virtually ignored by SMEs
- Not focussed on carbon emissions
- Lack of supporting policy, e.g. planning, direct
renewables investment - Does not impact on the general public and change
their behaviour
8CCL what does the future hold?
- Extend CCAs to more businesses, or all businesses
- Increase targeting of CCL revenues to
energy-related schemes - Increase levy to strengthen fiscal incentive for
investment in renewables - Replace CCL with a Carbon Tax (Lib Dem policy)
9Carbon Tax proposals
- Simpler scheme directly and transparently
targeting carbon - Easily harmonises with other EU countries that
already have a carbon tax or will in the future - Reaches small businesses that do not qualify for
Emissions Trading Scheme - Reaches the domestic sector (but additional
measures needed to protect against fuel poverty) - Reaches transport, and should eventually include
aviation fuel - Measures to assist carbon intensive industries
should be time-limited - Favoured by environmental NGOs and Royal Society